DAKOTA ACCESS PIPELINE (DAPL) by Miller Howard Investments

Pipelines and energy midstream assets are essential components of the energy value chain. As of 2015, 76% of domestic crude oil (as measured by refinery receipts, EIA data) was delivered via pipeline. However, energy infra- structure is aging. Over 50% of the nation’s pipelines were constructed in the 1950’s and 1960’s during the creation of the interstate pipeline network, and some pipelines were built even earlier.

How Old Are US Crude Oil Pipelines?

Nearly half of US crude  oil pipeline  is more than 50 years old and was built before 1960. Although it’s only halfway through the 2010s, it seems to be shaping up to be a major pipeline decade.

Source: insideenergy.org, data source: PHMSA

The Dakota Access Pipeline (DAPL) has been headline news lately, and there appears to be a great deal of misin- formation in media reports. In this email, we try to present a better factual record, citing authority, where possible, regarding the DAPL developments and controversy.

Many of the facts and information stated below come from the published opinion of the United States District Court for the District of Columbia in the case captioned Standing Rock Sioux Tribe v. US Army Corp of Engineers, dated September 9, 2016 (“Standing Rock”).1

DAPL:

$3.8B cost

1,172 miles long, spanning four states

~84% complete (as of Energy Transfer Partners’ (ETP) Q3 16 conference call on 11/10/16)

The court in Standing Rock noted that 99% of the DAPL route traverses private land (needs almost no federal permitting). Only 3% of the pipeline would require federal approval and only 1% of the pipeline was set to affect US waterways.

Existing Infrastructure:

  • ETP opted to build DAPL along well-trodden ground wherever feasible. Around Lake Oahe, the pipeline will track both the Northern Border Gas Pipeline, which was placed into service in 1982, and an existing overhead utility line. Where it crosses Lake Oahe, DAPL is 100% adjacent to, and within 22 to 300 feet from, the existing pipeline.
  • DAPL will use the less-invasive HDD [horizontal directional drilling] method to run the pipeline under the Lake Oahe crossing, which will require less disturbance to the land around the drilling and bury the pipeline at a depth that is unlikely to damage cultural resources.

Waterways:

  • The Standing Rock Sioux Tribe (“The Tribe”) maintains that the Army Corp of Engineers (“The Corps”), which is in charge of permitting of the DAPL on federal land, unlawfully narrowed the scope of its review to only those areas around the permitted activity, as opposed to the entire pipeline. In reality, the Corps never had the abil- ity to regulate the entire construction of a pipeline. Congress has decided that no general federal regulation applies to domestic oil pipelines.
  • Each stand-alone crossing of a waterway is considered to be a “single and complete project” where the activity will affect no more than a half-acre of regulated waters at any single water crossing.

Tribal Consultations:

  • The Corps documented dozens of mostly failed attempts to consult with the Standing Rock Sioux from the fall of 2014 through the spring of 2016. These included at least three site visits to the Lake Oahe crossing to assess any potential effects on historic   properties.
  • From January to May 2016, there were no fewer than seven meetings between the two entities.
    • Army Corps Colonel Henderson attended several meetings with the Tribe. Henderson committed the Corps to imposing several additional conditions on DAPL, such as double-walled piping, in response to tribal concerns about environmental safety.
    • In the spring of 2016, the Corps worked with Dakota Access to offer consulting tribes an opportunity to conduct cultural surveys. The Tribe declined to participate in the surveys because of their limited scope. Instead, [the Tribe] urged the Corps to redefine   the area of potential effect to include the entire pipeline and asserted that it would send no experts to help identify cultural resources until this occurred.

Archaeological Concerns:

  • Using past cultural surveys, ETP devised DAPL’s route to account for and avoid sites that had already been identified as potentially eligible for or listed on the National Register of Historic Places. Professionally licensed archaeologists conducted Class II cultural surveys or more intensive Class III cultural surveys. Where this sur- veying revealed previously unidentified historic or cultural resources that might be affected, the company mostly chose to reroute.
    •  For example, in response to the Tribe’s concerns about burial sites at the James River crossing, the Corps verified that cultural resources indeed were present and instructed Dakota Access to move the pipeline to avoid them. Dakota Access did so.
  •  Dakota Access allowed archaeological and tribal monitors onsite to look for evidence of cultural or historic resources. Construction triggered the unexpected-discovery protocol six times. In each case, construction stopped until the state, federal, and tribal   representatives confirmed that the resources were not being dam- aged. Each one turned out to be a false alarm.
  • The Tribe’s former Tribal Historic Preservation Officer surveyed private land around the pipeline right-of-way. He documented the presence of several sites that he believed to be of great cultural note nearby and observed what he believed to be important stone features within the pipeline corridor. The Tribe filed a supplemental declaration on September 2. On September 3, Dakota Access graded this area. In a map of the area, the company sought to demonstrate that many of the sites documented by Mentz were in fact well outside the pipeline route. The rest, according to Dakota Access, were directly over the existing Northern Border Natural Gas Pipeline that runs through the area and thus could not have been historic artifacts. The Court in Standing Rock acknowledges that the map provided by the company does seem to indicate that the pipeline curves to accommodate the cultural sites.
  • By the time ETP finally settled on a construction path, the pipeline route had been modified 140 times in North Dakota alone to avoid potential cultural resources.
  • Of course, there are four methods of transportation: pipeline, boat, truck, and rail; each has risks (for example, here is an interactive map of annual oil spills from rail transportation http://www.mcclatchydc.com/news/nation-world/national/ economy/article24761968.html). As of 2015, 3% domestic crude oil (as measured by refinery receipts) arrived by rail and 5% by truck. Though, the volume of crude delivered by truck and rail has increased significantly in recent years.

Pipeline materials, corrosion protection methods, and construction technologies and standards changed and improved over time. Modern coating materials for steel pipe have greatly improved over those used decades ago. In the very early decades of pipeline construction, no coating was used at all. In addition, pipe welding, inspection and testing techniques have evolved. Many of the welding techniques used earlier have been phased out and replaced by newer, more reliable, and more effective techniques. Source: US Department of Transportation.

Opinions and estimates offered constitute Miller/Howard Investments’ judgment and are subject to change without notice, as are statements
of financial market trends, which are based on current market conditions. The information provided should not be considered a
recommendation and should not be considered legal or tax advice.

Information is obtained

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